Commerce Dept: July Retail Sales Rise to 4-Month High

Washington—As the third quarter and back to school selling begins, U.S. consumers are holding up despite an unpredictable stock market and uncertain economic forecast.

At least that’s the indication from The U.S. Commerce Department, which reported today that total retail sales climbed by the highest rate in four months.

While new consumer confidence reports hit the lowest since May 1980, the Commerce Department reported that sales increased 0.5% to $390.4 billion in July, following a 0.3% gain in June that had been larger than expected.

Since consumer spending accounts for about 70% of the nation’s economy, economists and retail analysts closely follow trends in spending.

“The retail sales numbers were really good, especially the upward revision of the June number,” Carl Larry, director of energy derivatives and research with Blue Ocean told Bloomberg News. “People are even feeling a bit better about the situation in Europe and expect governments to take action to help their banks like we did.”

Apparel and Accessories Sales Rise Again

Nine of 13 major retail categories showed a gain in sales last month, led by electronics stores, furniture retailers, auto dealers and service stations, the Commerce Department report showed. Sales of apparel and accessories rose 0.5% in July from June, but compared to July 2010, sales were up 7.7%.

The report seems to fly in the face of The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for August which slumped to 54.9, the lowest reading since May 1980, from 63.7 the prior month.

“The consumer is incredibly resilient and continues to struggle to maintain at least a minimum level of consumption,” said Lindsey Piegza, an economist at FTN Financial in New York. “Lingering weakness in the labor market as well as the recent turmoil in equity markets will put additional pressure on consumers in August.”

Not to mention that the stock market had its biggest one-week slump in stocks since 2008, and the threat of default on the nation’s debt has consumers and financial market both worried.

“The mood is very depressed,” said Chris Christopher, an economist at IHS Global Insight Inc. “Consumers are very fatigued and very uncertain. In the short term, people are going to pull back on spending.”

Others point to easing prices for food and gas as indications that many Americans are still spending. “The retail sales numbers were really good, especially the upward revision of the June number,” said Carl Larry, director of energy derivatives and research with Blue Ocean LLC in New York. “People are even feeling a bit better about the situation in Europe and expect governments to take action to help their banks like we did.”

Marshal Cohen, chief analyst at The NPD Group, Inc., a leading market research firm, said Thursday that “distractions are at a fever pitch. From the higher gas prices, to the jobless rate, to the NFL lockout, to the debt ceiling debate and then the S&P downgrade, the consumer has endured a lot.”

Still, “we have a consumer that has forged ahead despite all of that for the first 6 months of 2011,” Cohen noted.

“The market will remain volatile and the debt crisis isn’t gone, just bandaged for the moment. These distractions are likely to continue and that is going to put a lot of pressure on the second half, the bigger half of the retail year.”

Cohen said he sees the most vulnerable spot in the fashion industry in women’s apparel sales.

“Without any real newness in that market, it is going to be a challenge to get women to spend more impulsively during the fall this year. “